Medical Device Daily
Midwest healthcare startups attracted $1.1 billion in new investments across 166 companies in 2008, according to a recent report by BioEnterprise (Cleveland) and the Mid-America Healthcare Investors Network (MIHIN). Medical device companies attracted $524 million, or 48%, of the 2008 equity funding while $380 million (35%) went to biopharmaceutical companies and the remaining $183 million (17%) went to healthcare software and service companies.
These numbers rank the Midwest 3rd among U.S. regions and maintains a multi-year growth trend for Midwest healthcare investing, the report noted.
"The continued momentum seen in Midwest healthcare investments is the result of a concerted effort by the public sector, venture firms, accelerators, and research institutions to develop high-caliber healthcare startups," said Dan Broderick, president of MHIN and managing director of Prolog Ventures. "Midwest institutions are responsible for nearly one-quarter of the nation's NIH-funded research. This research is at the core of the startups that have spawned venture-backed companies, making the region home to over 300,000 bioscience employees."
BioEnterprise is a business formation, recruitment and acceleration initiative designed to grow healthcare companies and commercialize bioscience technologies. MHIN is a not-for-profit association of more than 48 venture capital firms from 14 states, with more than $2 billion under management.
As in past years, Minnesota ($331 million) and Ohio ($189 million) led all Midwestern states in dollars of investment attracted, followed by Michigan ($105 million) and Illinois ($97 million). The leading regions were Minneapolis ($290 million), Cleveland ($164 million), and Pittsburgh ($151 million). Major financings were reported in each area, the report noted.
"Midwest healthcare deals continue to mature and attract greater levels of investment both from Midwest-based venture firms as well as coastal investors," said Baiju Shah, president/CEO of BioEnterprise. "In addition, the Midwest healthcare pipeline has matured to the point where the region is seeing numerous high-profile acquisitions each year of venture-backed companies."
In 2007 Midwest healthcare companies attracted $1.2 billion in new investments across 137 companies. Minnesota and Ohio also led the region in dollars of investment attracted in 2007, followed by Indiana and Illinois.
According to BioEnterprise and MHIN, the success of the Midwest healthcare sector is due to the convergence of several forces, including: "excellent" academic, research and clinical institutions performing over one-quarter of all NIH and university-funded research; professional technology transfer offices yielding a substantial percentage of total U.S. licensing revenues and university-based startups; numerous leading healthcare companies employing more than 300,000 individuals; and the Midwest state economic stimulus and investment initiatives providing billions in funding to develop healthcare innovations.
"The Midwest state initiatives are an excellent example of targeted economic stimulus to jumpstart a high-growth, sustainable U.S. industry," Shah said. "The Midwest state programs can be models for the Obama administration's federal economic stimulus package. These programs demonstrate how the public sector can both catalyze and partner with the institutional and private sectors to drive company creation and job growth."
Over the past two years, there have been several high-profile Midwest acquisitions in all healthcare sectors, the report noted. In medical devices, Renal Solutions (Warrendale, Pennsylvania) by Fresenius (Bad Homburg, Germany) in 2007 for up to $190 million including milestone payments (Medical Device Daily, Nov. 30, 2007) and Theken (Akron, Ohio) by Integra (Plainsboro, New Jersey) last year for $75 million in cash and up to $125 million in milestone payments (MDD, Aug. 5, 2008).
Shah told Medical Device Daily that the ingredients for a successful biomedical environment have always existed in the region as the industry has had "an extraordinary presence throughout the Midwest."
Throughout the 1990s and the early part of this decade, Shah said, the Midwest was "hugely underserved" in terms of investments in the healthcare industry.
"You've always had a lot of industry, you've always had a lot of research and what has been missing for the longest time was the infrastructure to connect those dots," Shah said. So, he said, that's what the states and venture capital groups in the Midwest have started putting in place over the past several years through nonprofit accelerators like BioEnterprise and state programs such as Ohio's Third Frontier Project, a 10-year, $1.1 billion initiative to expand high-tech capabilities and innovation within the state. Such initiatives have helped Midwestern entrepreneurs find the technology and the resources needed to develop their companies.
"It really was a concerted effort, it didn't happen by accident," Shah said.
The reasons Minnesota and Ohio stand out year after year is different for both states, Shah noted. Historically, Minnesota has been an entrepreneur, corporate culture dating back to 3M (St. Paul, Minnesota), which "ultra-infused the great success stories in Minnesota like Medtronic [Minneapolis]."
While cities like Minneapolis have always had an entrepreneurial culture, the story has been different in regions like Cleveland and Pittsburgh. "In Cleveland and Pittsburgh it's been a really deliberate effort by the public sector, the private sector and the institutions to create this economy," Shah explained. From Cleveland and Pittsburgh's perspective, this effort was made out of necessity because the region's old economy was going away.
"I think we'll continue to see this level of growth and activity in the Midwest in '09," Shah said.
In other financing activity, Concentric Medical (Mountain View, California), a company that makes devices for clot removal in ischemic stroke patients, said it has completed a $15 million round of financing. The round was led by leading venture capital firm New Enterprise Associates and includes other existing investors and new investors, the company said.
"The positive developments at Concentric over the last several months made the opportunity to participate in this round of financing very attractive to investors," said Robert Thomas, chairman of Concentric's board of directors. "Concentric ended 2008 very successfully, launching multiple new products and expanding its distribution footprint both in the United States and in Europe. Concentric plans to accelerate market development through diversified technology and additional clinical trials, positioning the company well for 2009 and beyond."
The company noted some of its activities during recent months, including the launch of its third generation of Merci Retrievers, the V-Series, in July (MDD, July 29, 2008). The new product incorporates elements of the Merci X6 Retriever and the Merci L-Series Retrievers into a variable pitch design, Concentric said. The V-Series is available in multiple configurations and sizes to match patient anatomy.
In September, Concentric expanded its global distribution network by opening Concentric Medical SPRL, a Belgian subsidiary dedicated to providing sales and marketing support to its European sales force. During the second half of 2008 Concentric doubled the size of its European sales team, the company noted.
In October, Concentric launched the Outreach Distal Access Catheter, describing it as a "highly deliverable, small diameter catheter designed to provide distal access and support in tortuous anatomy." According to the company, the Outreach provides neurointerventionalists easier distal access and enhanced support during minimally invasive procedures in the brain, and will serve as the platform for a wide array of products Concentric plans to release during 2009.